Five member lines of ‘THE Alliance’ gets FMC approval on US trades

The Federal Maritime Commission (FMC) in its final meeting of 2016 has given the green light to THE Alliance, the last group of container lines seeking a major vessel-sharing agreement (VSA), for their planned services to and from the United States.

THE Alliance, composed of Hapag-Lloyd of Germany; Taiwan's Yang Ming; and "K" Line, MOL and NYK of Japan, becomes effective on Monday, December 19.

Following the approval from the FMC, the fight between the three major shipping alliances on US trades is officially on starting April, reports IHS Media.

The other two alliances are the Ocean Alliance ?CMA CGM, China Cosco Shipping, Evergreen Line and Orient Overseas Container Line ?and the 2M Alliance of Mediterranean Shipping Co. and Maersk Line.

After failing to gain full membership in the 2M, Hyundai Merchant Marine said it would enter a strategic agreement, wherein the South Korean carrier will participate in slot exchanges and slot purchases with Maersk and MSC.

Together, the lines comprising the three alliances control 69 per cent of the shipping industry's total capacity, according to figures from Alphaliner. Considering the purchases of Hamburg Sud and United Arab Shipping Company, the percentage increases to 74.4 per cent.

THE Alliance will deploy 151 ships, with capacities ranging from 3,000 TEU to 14,500 TEU, starting April 1. The group's member lines are developing safeguards, including an emergency fund, to help recover stranded cargo if one of the members collapses as Hanjin Shipping did this year.

Using the Shipping Act of 1984, FMC commissioners had to determine whether the VSA would likely cause an unreasonable decrease in service or increase in cost before determining whether to allow THE Alliance to take effect. If commissioners found it lacking under the law, they would have sought a federal injunction to block it.

VSAs prohibit joint sales and marketing and only allow members to cooperate on operations in order to pool their larger ships together so economies of scale can be achieved via fuller loadings.

The FMC has yet to reject a VSA. China, however, once denied a proposed VSA between Maersk, MSC and CMA CGM, causing the P3 Network's dissolution and the creation of the 2M Alliance that same year.

FMC Commissioner William Doyle said he didn't give his vote of approval until THE Alliance scrapped language that would allow them to jointly contract with third-parties. The commissioner has successfully pushed back on such language in the original proposals from 2M and Ocean Alliance members.

"This follows the framework I have supported whereby alliance members must negotiate independently with American businesses such as tugs, barges, stevedores, chassis providers, container equipment lessors, bunker suppliers and other third party service providers in the United States," Mr Doyle said. "On commercial matters The parties can gain significant efficiencies by jointly discussing operational matters."